1. If a borrower defaults, the lender has the legal right to ask the guarantor to repay the loan.
2. When a friend or
relative asks you to stand guarantee for his loan, don't treat it as a simple
formality, because the responsibilities and liabilities of a guarantor are similar to that of the borrower.
3. Apart from
repaying a loan that someone else has taken, the proceedings can negatively
impact your own loan eligibility, because the amount for
which you stand guarantee will reflect as outstanding liability in your credit
report.
4. The liability of
a guarantor ends only when the loan is fully repaid, and if you are unable
to pay, your credit score will be impacted.
5. When the borrower
defaults, the banks would turn to you for its dues, and also consider the loans for which you are acting as guarantor to assess your
repayment capacity before issuing you any fresh loan.
6. Hence, ideally
you should act as guarantor for loans with shorter tenures so that your
responsibility ends sooner.
7. Multiple
guarantors for a loan can reduce the burden for each guarantor, if the borrower defaults, is disabled or dies.
8. If you are not
confident about the debtor's capacity to repay, avoid becoming a guarantor.